TaxTMI 
TaxTMI 
2024 (4) TMI 350
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.... these appeals are as under: A.Y. ITA No. Appeal filed by Issues Total Addition u/s 68 on account of share premium Addition u/s 56(2)(viib) on account of share premium Int paid on loan taken from Holding Co. 2011-12 2653/Mum/23 Department 10,00,00,000/- - 45,67,728 10,45,67,728 CO 119/Mum/23* Assessee - - - - 2012-13 2635/Mum/23 Department 30,00,00,000 - - 30,00,00,000 2013-14 2651/Mum/23 Department - 9,60,00,000 - 9,60,00,000 2014-15 2650/Mum/23 Department - 8,00,00,000 - 8,00,00,000 2017-18 2646/Mum/23 Department - 12,00,00,000 - 12,00,00,000 70,05,67,728 * Validity of reopening u/s 147 of the Act. ITA No. 2653/Mum/2023 A.Y. 2011-12 2. The grounds of appeal of the revenue in ITA No. 2653/Mum/2023 are as under: 1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 10,00,00,000/- being the share premium u/s. 68 of the Income tax Act, without appreciating the fact that during the course....
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....internal audit system. The AO also found that the company has accumulated loss of more than Rs.175,00,00,000/-. Therefore, the investment of such huge amount by way of share premium makes the transaction appear non-genuine. The other reason for reopening was claim of interest expenses of Rs.45,67,728/- in spite of huge losses during the year. Since the holding company and the shareholders have introduced share capital, it would have been proper, if they had advanced interest free loan instead of charging interest. 4. The AO also found that the assessee has made late payments of employee's contribution during the month of February 2011 amounting to Rs. 1,50,958/-. The assessee also made delayed payment of ESIC for month of April 2010 and October 2010 amounting to Rs.46,258/-. For these reasons, the AO had reasons to believe that income chargeable to tax had escaped assessment to the extent of Rs.10,47,29,944/- 5. In response to the notice issued u/s 148 dated 16.02.2016, the assessee filed reply on 22.02.2016 stating that original return filed on 27.09.2011 may be treated as return filed u/s 148 of the Act. The assessee requested to provide the reasons for reopening the assess....
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.... from the Godrej group in year 2008. The management of Future Venture India Ltd. and Godrej Agrovet Ltd. planned to help the appellant company and scale its rural retail business by introducing new store formats and innovative selling initiatives. For this view and expecting future growth, both the groups invested in the appellant company on year to year basis, in order to provide liquidity and expand the footprints of the assessee company. 9. The appellant further stated that valuation report from the Valuer was obtained in 2010-11 wherein as per the projected scenario, the share price was arrived at and according to the said report, the shareholders invested the required amount in the company. Further, it was contended that identity and creditworthiness of the parties have been accepted by the AO. It was submitted that the management passed resolution during the subject year for converting short-term loans Rs.8.75 crore and Rs.2.37 crore from Future Venture India Pvt. Ltd. and Godrej Agrovet Ltd. respectively into share capital, wherein it was agreed to issue the share at Rs.50/- per share comprising face value of Rs.10/- per share and share premium of Rs.40/- per share. The a....
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....11UA in the I. T. Rules 1962. As regards the company, which is a limited company, its board of directors has decided the allotment of the shares to the said investors as per their discretion and strategic planning of the venture under consideration based on the report submitted by an independent consultants before the board. The minutes of the Board Meeting of appellant have been furnished wherein the decision of the Board Members in support of the business plan for allotment of shares after conversion of short term loans into equity has been resolved. In view of the above discussion, this ground of appeal is allowed." 10. Aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us. The Ld. (CIT) DR has strongly relied on the assessment order and has argued that despite sufficient opportunity of hearing, the assessee has not been able to prove the genuineness of the transaction regarding the high premium of Rs.40/- per share paid by investors. However, he admitted that the identity and creditworthiness of the investors are not in doubt. He stated that there is no valuation report to justify the exorbitant premium paid by the investors. He drew our attention to t....
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....t to compute the fair market value of quoted shares, one of the methods prescribed under Rule 11UA, Income Tax Rules, 1962 is Discounted Cash Flow (DCF) method where the fair market value of the share is determined by the merchant banker or an accountant. He contended that actual result may vary upwards or downwards depending on various marketing/economics/social conditions and therefore, such valuation cannot be reviewed or compared with actual figures at a later date. He stated that the valuation report needs to be accepted as it was supported by an independent Valuer which cannot be tinkered at a later point of time by substituting it with actual results. In the said valuation report the equity value of the company has been estimated Rs.123,00,00,000/- and the enterprise value estimated at Rs. 145,00,00,000/- and therefore the fair market value of shares of the assessee company ranges from Rs.50 to Rs.60/-. In the DCF method, all cash flows expected as a particular point of time are estimated and discounted by using cost of capital to determine its present value. The Ld. AR submitted that the AO has nowhere pointed any specific adverse findings in the projections of the valuatio....
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....such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: [Provided further] that nothing contained in the first proviso [or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." 17. A bare reading of section reveals that section 68 reposes in the AO the jurisdiction to enquire from the assessee the nature and source of the sum amount credited in its books of account. If the explanation given by the assessee is found not to be satisfactory, further inquires can be made by the AO himself, both in regard to the nature and source of the income credited by the assessee in the books of account. The section accords statutory recognition to the principle that cash credits which are not satisfactorily explained, or not at all ex....
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.... nature and source of credit and once the nature and source has been proved which is not doubted by him and then how addition can be made under section 68 for treating the premium amount as unexplained on the reason that premium amount is not justified. To tax such such premium amount on account of valuation more that the fair market value statute has brought section 56(2)(viia)/(viib) from A.Y.2013-14. Thus such an addition cannot be made u/s 68 of the Act. 20. The Ld. AR of the appellant has further contended that the transaction is a commercial transaction wherein exiting shareholders and independent investors have agreed to participate in business venture based on their own understanding of the industry, risk-reward matrix and other relevant factors which are highly subjective for each individual investor. The valuation report for issue of share was prepared prior to notification of Rule 11UA of the Income-tax Rules, 1942. We find that the valuation report was prepared for A.Y. 2010-11. Though, no fresh valuation report has been prepared, there are no substantial changes in the projections made in the said report. The Valuer has adopted DCF method which takes into account th....
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.... as receipt of premium on issuance of shares was not "receipt of income", but it was a "capital receipt". The Hon'ble High Court held that the receipt of share capital including share premium was on capital account and gave rise to no income. The facts of the present case are similar to the facts of the decision cited supra and therefore, on this ground also, the appellant is liable to succeed. In the result, the grounds of appeal of the revenue are dismissed. 24. The next ground in deletion of disallowance of interest of Rs. 45,67,728/-. During the year assessee has paid interest of Rs. 45,67,728/- on loan taken from holding company Future Venture India Ltd. AO has made disallowance on the ground that when assessee has made huge losses why interest has been paid. 25. The Ld. CIT (DR) has relied on the assessment order of AO whereas the Ld. AR of the appellant has relied upon the order of the Ld. CIT (A). 26. The Ld. CIT(A) allowed the ground by discussing as under:- "Perusal of the Tax Audit Report reveals that interest paid on ICDS to Future Venture India Ltd. is Rs. 45,67,728/-. In view of the findings on ground of appeal 3 supra, this ground of appeal is allow....
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....d order u/s 143(3) was passed assessing the total income at returned loss at Rs. 25,70,73,672/-. However, the AO has reopened the assessment u/s 147 of the Act for the reasons which were already examined in the assessment proceedings i.e. receipt of share capital including share premium. The objection of the assessee was rejected by the AO on the ground that the assessee was not able to prove the genuineness of the transaction of share premium of Rs. 10,00,00,000/- at the time of assessment proceedings. The Ld. AR submitted that the issue was duly raised by the AO in the original assessment proceedings and no new tangible material has been received by the AO after completion of the original assessment which can warrant any change of the opinion already formed on the subject issue. Mere change of opinion on the same set of facts does not entitle the AO to reopen the completed assessment. It would amount to review of own decision by the AO, which is not permissible. For this, the Ld. AR also relied on the decision of the Hon'ble Apex Court in the case of CIT v/s Kelvintor of India Ltd. reported in 320 ITR 561 (SC). The Ld. AR relied on the decision in the case of CIT v/s Eicher Ltd (....
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....the Hon'ble Court held that the reopening is based on mere change of opinion and would amount to review of the assessment order, which is not permissible. It also held that receipt of share premium does not competitive income charged to tax under the Act. The case of the appellant is covered by the above decision. In view of the facts and the precedents discussed above. Therefore, the ground of the appellant is allowed. 32. In the result, the appeal is allowed. ITA No. 2635/Mum/2023 A.Y. 2012-13 33. The grounds taken up by the revenue are similar to the grounds raised in A.Y. 2011-12. The facts are similar to the facts of the case for A.Y. 2012-13. The issue involved is regarding addition of Rs.30,00,00,000/- towards share premium u/s 68 of the Act. The arguments of the Ld. AR and the reasons given by the AO, which was relied upon by the Ld. CIT (DR), are also similar to the reasons and arguments of the earlier year. Hence, following reasons given above for A.Y. 2011-12, the grounds of revenue are dismissed. Accordingly, the appeal of revenue is dismissed. ITA No. 2651/Mum/2023 A.Y. 2013-14 34. The facts of the case are similar to the facts of the appeal for A.Y. 201....
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....in the valuation report were never achieved and the appellant company continued to incur losses over the years. He further stated that in the case of M/s. Bahar Agrochen and Feeds Pvt. Ltd., which is one of the shareholders of the assessee company in A.Y. 2011-12, the NAV of the appellant company was determined at only Rs.5.93. However, the company has received excessive premium of Rs. 40 per share and totaling to Rs.9,60,00,000/-. The AO has quoted section 56(2)(viib) in the light of the above factual background and held that the assessee failed to justify issuance of shares at such high premium. Accordingly, the total sum of Rs. 9,60,00,000/- received by the assessee as share premium was disallowed and added u/s 56(2)(viib) of the Act. He also simultaneously initiated penalty proceedings u/s 271(1)(c) of the Act. 36. In the appellate order passed u/s 250 of the Act on 31.05.2023, the Ld. CIT(A) has considered the facts of the case and submission of the appellant that 70% shares of the appellant was held by the Future group and 26.14% was held by Godrej Group. Therefore, the appellant is subsidiary of M/s Future Group Venture Enterprises Ltd. (FVEL) [Now known as Future Consume....
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....y in which the Public are substantially interested- 6.4 The provisions of section 2(18)(b)(B) of the I. T. Act, 1961 are as under b) if it a company which is not a private company as defined in the Companies Act, 1956 (1 of 1956), and the conditions specified ether in tem(Ajor in tem(B) are fulfilled, namely (A) shares in the company for being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits were, as on the last day off the relevant previous year, listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act 1956 (42 of 1956) and any rules made thereunder, [(B) shares in the company (not being shares entitled to a fixed of dividend whether with or without further right to participate in profits) carrying not less than fifty percent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by (a) the Government, or (b) a corporation established by a Central, State of Provincial Act (c) any company to which this clause a....
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.... satisfies the condition in clause (b)(A). The shares of Future Consumers Ltd. are listed on BSE and NSE since 10th May 2011. In view of the facts it is a company in which public are substantially interested and the appellant is deemed to be a company in which the public are substantially interested within the meaning of section 2(18) of the Act. It is thus evidently clear that provisions of section 56(2)(viib) are not applicable to the appellant company. 41. Regarding valuation of shares, we are of the considered view that it was a commercial decision by the promoters of two companies who had agreed to rely on the valuation report which was relied upon while subscribing to the shares of the assessee company in FY 2009-10. In this regard, the appellant has relied upon the decision of the ITAT, Mumbai in the case of Green Infra Ltd. v/s ITO (2013) 37 CCH 0059 where a newly created company had issued shares of Rs. 10 each at premium of Rs. 490 per share. During the assessment proceedings, the AO had observed that own funds were introduced by the assessee through shareholders under guise of revenue. The AO also questioned the authenticity of the valuation report. In the first appea....